Will IT Centers Move to Rural India?

India and China are the countries on which forecasters and many other students of economics and development have cast their eyes for the next decade at the least. And to the many who are observing the great development experiment, India is cast as the country whose recent race into high economic growth is based on an services such as software development and business process outsourcing. China's huge advantage in manufactured exports is casually contrasted to India's intermediate dominance in export of services.

A major concern with India's development has been the fact that a large proportion of of its population is rural-based. So the service industries have been based in the main urban centers and therefore provided jobs to a minority of the labor force. Rightly speaking therefore, it is not clear whether India would be able to hinge its development entirely on the technology-driven service industries because they have so far not generated jobs in high quantities. Indeed, Mira Kamdar states in this book, Planet India that India's highly adulated information technology industry employed a mere 1 million people in 2007.

Lydia Polgreeen of the NYT has captured a new trend in India's technology industry. It appears that in the permanent quest for lower cost and the availability of literate people in India's less urbanized regions, firms are establishing offices away from Bangalore and Gurgaon, the traditional technology cities. Given the facts revealed in that story, there is internal competition for the most basic work and this drives the volumes towards the cheaper cities. To my mind therefore, there's anew dynamic in job creation in the technology industry and this will not only intensify competition within India's firms, but deliver greater efficiencies for firms that are outsourcing that work. So while there are no guarantees in development, this new frontier for IT work in India will lift more Indians from poverty.

Google's Dilemma: Buy or Make

Even putting aside the fact that this blog is largely made possible by a facility that Google makes possible, one could still dispassionately say that the corporation's employees are creative and display good business acumen. Reading this story in the NYT about Google's offer to purchase AdMob in exchange for shares worth US$ 750 million got me thinking about business strategy. To start with, it is clear that the Google seeks to expand the range of its revenues into as many personal devices as is possible and that has inevitably led to mobile phones. And so what Google has done is to conduct surveillance of the landscape and determine whether it needed to build a new device or acquire a separate corporation.

From the point of view of one interested in how businesses weigh decisions, I am wondering how these corporations strike a balance between building up a new service from scratch or acquiring a different entity at a fair cost. In the case under discussion, Google's offer is to take over the new corporation through a share swap hence with no cash changing hands. What draws my attention to this is that google will offer more than a million shares at today's price of US$ 566.7 per share in exchange for a corporation as it chases the opportunity to take up some space in the battle for shares in advertisements for mobile phones. Given the large number of engineers that google has, the calculations that inform this acquisition are unclear to me. I suspect that good managers are capable of considering when an acquisition would be a better deal than a complete buildup from scratch. In spite of this, I am intent to watch this transaction keenly as it would be important to se how Google leverages from computers onto the mobile phone advertisement space.

Related to the story of this transaction is the concern that Google is becoming the behemoth of the technology world and its competitors and detractors would like to see its freedom to make acquisitions checked. It is not clear to me that an acquisition of whatever kind would in itself guarantee Google continued dominance and therefore would not be particularly concerned about the quest to expand its footprint in the digital world. As Peter Osnos writes in The Atlantic, recent history suggests that Google is in a stage where it will have to be more careful to prevent overreach and concentrating on innovation.

Why Intel Should Negotiate a Settlement

Few people who watch technology very keenly are unaware that Intel corporation has been facing law suits in relation to its conduct towards PC makers. The variety of technical claims are complicated but in short, they suggest that this corporation has been paying PC makers not to use its competitors chips in their machines. The direct effect of this is that it forestall competition at the assembly stage and thereby harms the consumers of computers. As the story here states,the corporation has defended itself both in the EU and Japan but has faced heavy fines in both jurisdictions. That notwithstanding, the Attorney General of New York has also instituted a lawsuit against Intel on similar grounds.

As would be expected, the story reveals here the ongoing discussion because there are institutions and professionals pitching on both sides on the merits of the case. Judging from the outcome of the cases in both Europe and Japan, I think that the probability of Intel emerging from this case completely unscathed is low. And while I am reluctant to accept that business targets should of necessity be determined by courts, I think that the management and shareholders of the corporation should consider whether a vigorous battle in court is in the corporation's interest.

Again, in spite of my inability to tell fully how the case will be determined and what the size of any fines may be, I consider that Intel should negotiate with the DOJ and New York's AG. The reason for this is that the corporation will remain a strong competitor in the computer chips market and it should preserve its strength and management focus towards that. This view is informed also by the degree of disclosures that have been made about the conduct of the firm's employees which showed that they were aware that some of the business conduct was questionable. Finally, considering that the lawyers are properly schooled in competition law and would represent the firm competently, the history of these actions suggests that the case will probably be long and take up large sums of money.

So the advise is not to cut and run but rather to admit that management's time over the next few years should not be consumed with a trial of this kind. It is clear that in spite of its big fights in the same places, Microsoft did not do any better. Intel's management should show some intelligence here and choose its fights.

Cash for Clunkers Reassessed

Writing this blog post a while back, I stated that the Cash for Clunkers programme was a lesson in applied economics because it revealed that the subsidy itself revealed the preference for car models by Asian manufacturing firms in addition to the fact that the surrendered models were disproportionately those made by US car manufacturers. That blog post was incomplete to the extent that it makes the assumption that the overall programme was otherwise a successful one.

Well, I am now completely chastised, having read from no less than Steven Levitt here, that overall, the cash for clunkers programme was not an unqualified success. Referring to this data based analysis, it is clear the unquestioned attribution the entire set of sales to the programme is incorrect. As he states, there are a large number of acquisitions that would have occurred regardless of the programme. So what happened is that the subsidy merely led to a change in the moment of purchase for the individuals who already made plans to purchase new cars anyway. Taking account of this shift, the Cash for Clunkers programme ends up as a waste of resources.

A Sober Take on Ayn Rand

Among the most difficult things to communicate about popular books is that it is possible for an otherwise average author to tackle a profound subject brilliantly. And so while I define myself as a person who appreciates the profound insights by Ayn Rand, I am often left to wonder whether I read the same books as some of her greatest admirers did. My view of her books is that she writes about very profound matters through impressive characterization but I find her prose style a bit drab. And that does not then mean that her books are unworthy of reading, it is only that perhaps no writer could be gifted with all three qualities. In my view, the story telling is important because some of the most popular of Ayn Rand books are huge tomes and may be especially taxing when the prose is uninviting.

That notwithstanding, I find that Ayn Rand's books and especially the Anthem, The Fountainhead and Atlas Shrugged tackle profound issues that are of significance for those wondering about the organization of society. With this in mind, I agree that some of the most strident arguments against her books are overstated while some of the adherents to her philosophy are equally exaggerators of her writing ability.

Governor Mark Stanford makes the same argument in this piece in the Newsweek Magazine where he starts by saying that he was equally impressed with the weight of the issues that the were covered in Ayn Rand's most popular titles. To my mind, the idea of individual ability and freedom should not be controversial and one that the books have examined in detail. Starting with the appropriate metaphorical ring of Atlas Shrugged, the books by this author address very profound issues regarding individual initiative and freedom as compared to statism and collectivism. I am less convinced of her absolute rejection of the role of government in public affairs but still think that the overall belief in freedom for the individual is an extremely valuable and empirically valid point. So while the Governor indicates that Ayn Rand too exhibited authoritarian traits within the organization that she formed, I respond with the view that this is a an equally profound manifestation of the contradictions of her life without negating the potency of a majority of her ideas.

No Business is Too Special or Too Big To Fail

"It is impossible for regulators to prevent business failure, and undesirable to pursue that objective. The essential dynamic of the market economy is that good businesses succeed and bad ones do not". John Kay

Economics and Vaccination

It is important not to stretch the many uses to which knowledge of economics at any level is useful for policy design. However, as I read this NYT article by Sarah Klein and Phyllis Greenberger, it just occurred to me that economics is more useful and is surely not just about money and aggregates such as the Gross Domestic Product. In their argument, they posit the results of studies stating that there are reasons of biology which makes women and men to require different doses of vaccines in order to achieve the required effect. Because the studies that they cite show that women's bodies are more efficient at generating a protective response from vaccines as compared to men, then this factor should be employed in the analysis of demand for vaccines.

They authors of the article argue eloquently as people with an understanding of human biology and health research but they do make a subtle but interesting economic argument based on optimum use of resources. I see two clear arguments that a student of economics would be impressed by. First is that in light of the fear that the flu vaccine for the H1N1 virus may not be available in quantities to cover everyone who would be most vulnerable, the consideration of the differences in biology are essential in ensuring that the greatest effects emerge from use of a given quantity of vaccine. The second argument is that it may be useful for public health professionals to consider whether the same proportions of men and women should be receiving the vaccines. So given the loud protests from some people who are reluctant to take vaccination, it does matters whether it is a man or woman who opts not to be vaccinated.

McDonald's Pulling Out of Iceland

I have recently had an intense interest in learning to design and test small algorithms that act as predictors of certain events or phenomena. The reason for this is to attempt to see whether through modest number crunching, these models would predict sports, political or business outcomes with any degree of accuracy. Taking forward those assumption, I would have considered that the income levels of a country, the degree of urbanization and locations north of the equator and the structural composition of the GDP would be a crude but passable predictor of the existence of a McDonald's restaurant in any country today. And while trying to be clever, I would not consider the predisposition of a nation's citizens towards the consumption of beef in that model because as I posted here a while ago, there are several McDonald's restaurants in Indian cities where beef is neither easily available nor widely consumed.

I am most surprised by this story in the Guardian that the McDonald's restaurants in Iceland will be closing down in a few weeks in spite of the fact that the country meets most of the criteria that I have enumerated above. The stated reason only makes sense to me by hindsight. It's become far too costly to Icelandic consumers to buy burgers when the Icelandic Kronor has lost value in relation to the Euro. These consumers therefore feel that difference in the cost of their burgers while the franchise loses opportunity for profits.

So There's No Shortage of Engineers in the US

For quite some time now, the unquestioned view has been that the United States does not produce sufficient engineers to match the needs of its private sector. As a result, the reasoning goes, private sector in the US is losing the ability to compete favorably with firms based outside that country. at the same time, the freeze on working visas for professionals from south Asia and other parts of the world due to security concerns has been mentioned as an aggravating factor.

Much as it is with most other policy questions, a study with funding from the Alfred P. Sloan Foundation suggests that this contention is popular but largely untrue. As it is summarized in this here, the US does not suffer from an acute shortage in engineers. Instead, there are insufficient incentives within that country for its most qualified minds to go into science, technology and Mathematics (STEM) industry. Most of the best mathematicians are going to work in business consultancy and in the financial services industry.

My perusal of the report shows that STEM qualified graduates are being recruited into jobs that are not categorized as STEM. stated differently, the STEM industry is losing the competition to keep this pool of talent. So just because people are not working in the STEM does not mean that there are no qualified people, it is just that they have far more options and they are taking them. In a manner of speaking, STEM occupations cannot compete for the existing talent. That may still suggest that there is insufficient talent to serve all the purposes for which STEM graduates are in demand.

Finally, I have to read Paul Romer's paper once more to understand what this new information means. Paul Romer's contention then was that the government's technology policy appeared to be subsidizing demand for scientists by the private sector without questioning to what extent that was the most optimal approach. What Sloan study puts to rest is the assertion that US students are not sufficiently motivated to study science and mathematics. So this is one study that Thomas Friedman should review carefully before the 3.0 version of his best-selling book.

China's Ingenious Local Bosses

As a curious watcher of the development experiment going on in China, I have found the ingenuity of its public sector officials quite illuminating. I stated this here on the tendency to introduce rules and regulations without much forethought or careful design. The thought that came to my mind after reading this story in the NYT relates the immense power that local bureaucrats wield in that large country. As the story states, most of these rules are arbitrarily issued by local officials who bear substantial local power and often with very little oversight and external accountability. It is therefore not surprising that the a local official in Huangping has instructed pupils to salute all passing cars while on their way to school.

Notwithstanding the fact that it is possible to ensure traffic safety in other less intrusive ways, the officials who introduced this rule are defending it as a mechanism for instilling good etiquette and for road safety of the school children. I just wonder whether road signs, some speed bumps and training on road safety for kids is insufficient. As various instances of strange regulations show, this state of affairs merely manifest the extreme levels of discretionary powers that local party officials wield. It does not occur to them to consider equally effective and less risible ways for managing public affairs.

This state of affairs is largely consistent with claims stated in a book titled, "Will the Boat Sink the Water?", which I read a couple of months ago. Its metaphorical title aside, its authors have crafted a series of stories illustrating the level of exploitation and harassment of China's peasants in one of its provinces. In all, it tells the state of affairs that many people fail to see when they merely visit Beijing and the main industrial cities. And the poignant question in my mind is that despite the unprecedented successes that China has made, it shows that very tight and accountable authority undermines the development process. Such wide and unaccountable discretion leads to regulatory overreach and silly rules that school kids like to make fun of.

Measuring Absence in Ireland's Civil Service

One can guess that the revelation by the study discussed in this piece in the Irish Times would please the supporters of small government. The argument being that clerical officers in Ireland take an average of 16 days sick leave per year and that is evidence of lower efficiency and a slack attitude to work. Reading further, it is clear that there are variations in the total days taken up for leave. The one factor that I find worthy of examining further is the finding that up to 42% of all absences are not recommended by physicians and that most of the leave days are taken up by clerks in the Irish public service. In addition, the management would be concerned when up to 59% of all employees called in sick in a given year. In honesty, I am not sure what the right proportion should be because that number is probably important when dealing with human resources as the main cost factor.

Rightly, the report recommends that the recording of the absence is important in addition to other factors such as the grades of the employees. In this way then it will be possible to determine whether the rates of absence are too high or not. Still, I am concerned that with an economy that has been quite robust, the fact that the absence rate has moved from 3.3% towards 40% requires a proper answer. Only then would it be possible to make comparisons and determine why the clerical sections are more prone to illness or whether this reflects poor supervision.

Isaac Newton's Chair has New Occupant

I consider A Brief History of Time the one book that many bought, few read to completion and even fewer understood. In spite of all this, it is still a best selling book and one that made many people mildly aware of what black holes are. It was also a fascinating fact that the author held the chair that was occupied by Isaac Newton. His scientific accomplishments aside, Stephen Hawking's life is one to marvel at primarily because his life and the manner in which he has overcome his disability is itself worthy of proper study.

And now that prof Hawking has retired from the Lucasian Professorship of Mathematics at University of Cambridge, he is succeeded by Prof Michael Green. That the popular publications attempting to make an understanding of particle physics understandable will continue is probably not in doubt. I hope that professor Green will in time try to publish something that takes that tradition forward. My hope is based on my sensible conjecture that it is essential to produce publications that bridge the vast and growing gap between scientific thinkers and the interested laity.

Ambani Brothers Dispute Not For Courts

An article in the Times newspaper here covers the formal commencement of hearings in the legal battle between two brothers representing the most affluent of India's business families. In spite of this being described as a business dispute about the agreed price for sale of energy by one side of the firm to the other, I am skeptical that this is really a matter for the courts. The series of disputes between them that commenced after their father's demise suggests to me that this is more than a commercial matter.

Granted that there is a commercial interest for each of the brothers in the outcome of the case, to my mind, it is clear that this is a family feud related to inheritance that is being resolved in the courts. Notwithstanding the claim in the story that Mukesh and Anil Amabani are together managers of corporations that account for 5% of the Gross Domestic Product for India, I suspect that the feud between them cannot be resolved through the courts. Indeed, the proper arbiter here may still be their mother as she was the one who engineered the initial division of the property inherited from their father. Evidence that this is not entirely a commercial dispute would come in a subsequent court battle irrespective of the outcome of the present one. As a consequence therefore, the real arbiter for 5% of India's GDP is Kokilaben and she requires the wisdom of Solomon here.

Book Publishers Have Lost This Fight

In the arena of business, very few things are certain but I have been making written bets on this weblog about the arrival of Kindle and the possibility that it will change not only the delivery of books but also the economics of publishing. It is apparent to me that the arrival of the Internet led to successful distributors like Amazon and Barnes and Noble but these alone did not shake the economics of the book industry by a great deal. As it is, the same stores had to deal with the publishers and were merely trying to develop retail outlets with a wide number of titles.

That is why, the books publishing industry has been behind the curve even as the arrival of digital formats has required some degree of revision. They have failed to note that just because they have a trusted model that ensures their profitability off hard covered books does not mean that the market will continue to respect that. I argued here that it is particularly ill-advised that in spite of the clear difference in costs, they have insisted on selling digital copies at the same cost as the paper copies. Whatever the reasons given, they forgot that in the long term, the prices must draw closer towards the marginal costs.

Marion Maneker presents the best analysis I have seen following the recent price war on this year's best sellers between Amazon, Target and Walmart. In my view, a price war may not be ideal for the corporations but it is ideal for students of economics and especially for the book readers who purchase those titles. The article is incisive because it states that the economics of books publishing will change especially in the manner in which the pricing and royalties are paid. In my view, the sliding scale approach is more apt because it reduces the risk of failure for the publisher and rewards the authors in accordance with the real sales of the text. As Marion Manker argues, the publishers are more inured to the existing model and less inclined to reducing their profits per copy of the titles.

In conclusion, the publishing industry is already incrementally losing this battle and it is best to reconsider the model now than have to be supplanted completely by either Walmart, Amazon or Target. The longstanding model that worked for hard cover and which allowed a title that is published at US3 to sell for 8 times the amount will most probably survive for a large number of books. My bet is that it surely cannot be transplanted in whole as a pricing model for e-books.

3D Movie Glasses: Anthropologists to the Rescue

Business advise today is pretty sophisticated and is largely a spreadsheet dominated trade. However, one need not read many articles and analyses documenting the serious missteps that corporations have made while taking steps from business advisory firms and management consultants to wonder how some things get overlooked. This occurred to me as I read this piece describing how the 3D movie theatres and accompanying equipment is totally unsuited for children and younger audiences. This is unbelievable to me because to start with animated movies are particularly suited for 3D viewing hence are particularly dependent on an audience of children.

Steve Chamberlain of the Guardian presents his experience as a frustrated parent who realized that viewing glasses do not fit his children in spite of having spent a premium to provide the children with a fantastic viewing experience. This just leads me to ask whether the corporations developing 3D movies theatres and developing the content ever heard of anthropologists. It is such serious omissions that give business advisers and marketing people a deservedly bad name. I hope they lose sufficient business to recall that children's heads are of different circumferences. It looks like some of these guys have never heard of deviations from the mean.

How do Pacesetters Affect the Outcome of Races?

As a person who watches sports events and tries to put in some analysis about what it takes to win one event or another, I am still unable to understand fully how record breaking performances benefit from pace setters or not. For instance, Sammy Wanjiru is without doubt a phenomenon in the marathon. I first watched him run during last year's Olympics games in Beijing and was impressed with his control of the race and the calculation towards the ends of that race. My thinking then as he casually jogged into the stadium was that this was definitely a unique runner among elite athletes in an extremely difficult and painful event.

Apart from that performance, the same athlete handily won the Chicago Marathon a couple of days ago. Liz Robbins of the NYT reports on the race and mentions the progress in that race. The fascinating thing in my view is the versatility of the athlete here because the running conditions in Beijing last year where the temperatures were very high. Come Chicago a year later and in vastly different conditions, he still won impressively.

The lingering question in my mind though is that the races are also different because unlike the elite marathon events, the Olympics event does not allow for pace setters. I wonder what effect, if any, the pace setters really have on the outcome of a race and whether there may be a better device for pacing an athlete towards breaking the record without involving other runners. In my view, the use of pace setters involves the introduction of assistance during the race. Not that it would matter for Sammy Wanjiru who lowered the record in Beijing by three minutes despite the absence of a designated pace setter. And noting that pace setting is not possible for the sprints, are there conditions in which pace setters are most siutable?

Are Maestros Like Bankers?

Any reader of this obscure blog will most probably have read the Freakonomics weblog too and knows that one of the principal authors there argues that high-priced wine is largely indistinguishable from moderate or even cheaper ones. My conclusion from this demonstrated fact is that expensive wine is largely a matter of choice and communication of the ability to pay. So while I am not a connoisseur of wines in any way, I am in possession of a modest though diverse collection of classical music CDs and therefore find her questions relevant.

I have it in mind to one day attend a live opera performance or one of the major philharmonic orchestral performances. Reading this piece by Philippa Ibbotson of the Guardian just led to me to consider the economics of orchestra music. Judging from the story, there are two really important things to note. The first is that the most acclaimed orchestras pay their conductors extremely well. The second is that there's a substantial gap between the instrument players and the maestros. This leads Philippa to question whether these conductors add sufficient value to the performance to justify their pay. Indeed, she seems to conclude that there would probably be very little difference in performances if the conductors were not physically present.

I am new to the economics underlying orchestras but I think that what the most acclaimed conductors earn is explained by scarcity. Because there are much more regular players than there are conductors, the pay differential would be expected though I am unsure that it ought to be that large. Secondly, conductors like Lorin Maazel are themselves among the best composers and players and so bring to an orchestra a rare knowledge and ability that enables them to recruit and perhaps shape other musicians. The combination of the two points above would lead to recognition of the name and this has the added benefit of attracting music lovers to a particular orchestra.

Clearly labouring to explain the reason that orchestra conductors earn sums equivalent to top bankers, I still am not sure that these are sufficient to explain their income levels. It is not obvious to me that if we took separate recordings of orchestras playing with conductors and another without, the music lovers would notice that difference. The maestros themselves would then be asked in a blind test to judge the quality performance and guess which had a conductor. The results of that test would then allow me to state with confidence whether Philippa is right to ask my favourite conductor to take a pay cut.

Digital Books Piracy

An article in the NYT notes the fact that digital copies of books are gaining appreciable sales. Naturally, the copyright holders are worried about what this means for the possibility of piracy. The article by Randal Stross asks whether digitized copies of popular books will be Napsterized. By this the article seems to assume that the ability to copy is already a given and that what is to be questioned is whether a network for their distribution of digitized texts will be established.

Reading from the piece, it is clear that there is a limited ability at this time to receive the copies of the most popular material from a variety of sites. Still, it is important that most of these sites are peer exchange or file storage sites that do not overtly mean to ensure the unauthorized exchange of digitized books. As a representative of Rapidshare states, everything is just a file and implies that the exchange could take place.

And therein lies the answer for e-book sellers because to the extent that these products are reduced to digital files, they will almost certainly be copied and transferred irrespective of the wishes of the producers. To my mind then, the publishers are in a situation where they must study this market carefully because a law and order approach will not work. It is also clear that the pricing mechanism must change significantly to reflect the fact that digital copies are cheaper to produce. for most publishers, this will affect the profitability per copy but perhaps for the most dedicated readers, there may be higher purchases.

As argued in this blog here and here, the cumulative lessons from Napster should be studied keenly. it is also essential not to overstate the effects and degree of piracy. If indeed book purchases are shrinking, then it is essential to determine how any improvements in the quality of products for readers compares to more sophisticated digital rights management technology and law enforcement.

Russia's Population Problem

One thing that makes Russia comparable to Japan is that they both face an impending demographic crisis. True, the reduction in Russia's population is already evident while Japan's is at most a decade away. So it is more exact to state that Russia's is real and present, while Japan's population shrinkage is yet based on an extrapolation of present growth rates.

It is therefore interesting that while on one side of the world, there's the concern for high growth rates, these two countries face this unique kind of demographic pressure that man has not been experienced at this scale since the agrarian revolution a couple of centuries ago.

This article reported by the associated press in the NYT makes the profound claim that Russia's population has shrunk by 6.6 million souls since the year 1992. While the options available include immigration and pro-natalist policies, the relative homogeneity of Russia makes it unlikely that the latter will be considered a part of the solution. To my mind, Russia's leaders are faced with a difficult problem that would affect future growth but enlightened immigration should not be certainly off the table.

On the other hand, the high mortality rates of Russians is attributed to the tendency to consume higher amount of alcohol and there is a fix here too. A tax based on the alcoholic volume of beverages should assist in reducing early mortality and deaths. eve for a shrinking population, the attempts to ban alcohol consumption is not sensible. In a sense, there's no silver bullet solution but the reconsideration of the immigration policy should lead.

Leading UNESCO

I understand fully that in international organizations, the political issues that underly election of top officials sometimes go beyond pure merit. In these instances, the clout of the country from which a professional comes from is material. There is not only a lot of lobbying and promises to exchange support in the future but also reference to a candidate's standing about issues that are divisive. A fortnight ago, member states elected a new Director General for UNESCo and as reported here by Michael Slackman of the NYT, this was even more overtly political.

In spite of those facts among many others that I have not mentioned, I am glad that the elections of the Director General of UNESCO was determined as it did. My main reason is that Farouk Hosny did not deserve to be elected to UNESCO leadership for the reason that while he has held intellectual positions, he particularly advocated for the burning of books for the reason that they were the works of Jewish authors. While I hold no illusions about the perfection of all men and the processes that determine elections to international bodies, I think that for an intellectual to adopt such nativist and dangerous populism is an indication that they are insufficiently independent minded to hold positions of advancing literacy and such culture. I now little about UNESCO but I know who does not deserve to serve in its leadership.

Quantifcation as a Stunt

For any reasonably qualified student of economics, the mathematical and modeling skills are bound to be quite high. Indeed they are now thought to be a good predictor for successful completion of any graduate course in economics. This is a view that is almost accepted by a majority of economists and has begun to creep throughout the other social sciences. One is not a serious policy wonk or academic unless there is a high facility with numbers and modelling techniques.

What many economists have yet to explain properly is that the need to quantify more and more things sometimes leads to very ridiculous results. Nobody takes a more measured view on the use for calculus and other higher order mathematical techniques than John Kay. In his latest article, he gives an interesting view of how far the demand for quantification is taken with the result that beautiful algorithms explain nothing that was unknown. Taking forward his example, the UNDP's Human Development Index is itself derived from education levels, national income levels and life expectancy and in spite of the concoction of a sophisticated formula, it reveals nothing more than was plugged into the algorithm.

In a matter of speaking, it is just a mathematical stunt because it correlates so highly with income that there is little distinction between the two. Citizens of countries with sophisticated economies will have higher life expectancy and higher educational attainment. To put the three by according them different weights is a matter of taste and the resulting index is not useful.

Israel's Miracle in Development Economics

The small country of Israel is one that many people have political opinions on and perhaps the one that few understand pretty well. However, whenever people talk of the countries that have pulled off economic miracles, I am wont to think of Hong Kong, Singapore and Ireland. Lately, the focus has turned to India and China with huge expectations of their longer-term development.

I have just read for the third time this well-told piece analyzing the genesis of Israel's development miracle from a relatively backward socialist country into the most sophisticated country in the Middle East today. Writing in City Journal, it is clear to me that George Guilder has taken an analytical survey of Israel's technology driven growth.

To my mind, the elaborate survey of Israel's economy shows that well thought reforms based on rational economics always pays off in a big way. It is not by default that Israel has managed to survive in the hostile neighbourhood while maintaining a far higher standard life for its citizens in comparison to other Middle Eastern nations. And it is clear that as it's private sector races forward with more investment in technology backed by solid economic reforms, it will continue to be formidable as a military adversary.

As a small country, the arrival of a reform-minded government ensured that new businesses based on new models emerged and naturally supplanted state supported competitors. This was closely followed by venture capital funds which have made Israel a leader in total investments after adjustment for population. It is also clear that success in the semiconductor design business opens up opportunities in biotechnology and software development.

In conclusion, unlike the author, I agree that Israel's performance over the last two decades should form a chapter in development economics course readers in addition to case studies for business schools. As a country, its business leaders are right on top of their game and are ensuring that the country will continue to be on the cutting edge of technology and therefore prosperous. To my mind, similarly clear thinking should be applied to political reforms so that the entire Middle east needs gets an example from this enigma.

Closing Vietnam's Think Tank

In my view one indicator of the level of freedom in any country is the number, quality and variety of issues that think tanks do. This is not to argue that there is a causative relationship between the two. This trite point occurred to me today after reading through this short piece in the LA Times. the main point of news in the story is that an independent think tank in Vietnam has opted to close down in response to an unreasonable quest to circumscribe the areas of independent research. The Institute of Development Studies has made a difficult and even arguably bad decision by opting to close down but it is understandable that independent thinkers are distressed by this appalling decree.

It is clear that the government of Vietnam is making a very serious mistake in placing restrictions on the matters that may be made the subject of research in that country. to start with, the most palpable purpose of research is to discover the unknown and clarify knowledge. It is therefore presumptuous for a government to insist that there are only 317 issues that should be subjected to research. I am most impressed with the statement by the IDS in asserting that banning independent thought is the antithesis of scientific endeavour and that open discussion is useful for policy creation.

As a previous visitor to Hanoi, I am disappointed because my assessment was that the country would continue to open up over time. I hope that Vietnam's savvy politicians can justify their reputation for pragmatism and regain my confidence by taking seriously the implications of this decision by a body of scholars to close down the thought factory. As I often quoted from Anthony Fisher before, ideas have consequences.

Steven Landsburg on Antidotes

" The antidote to bad religion is good science. The antidote to astrology is the scientific method, the antidote to naive creationism is evolutionary biology, and the antidote to naive environmentalism is economics". Steven Landsburg, in The Armchair Economist.

Saltwater Versus Freshwater Economists

For a discipline that has ridden high in the last two decades, I think that the recent financial crisis and subsequent economic recession will leave economists of all kinds with lots of explanation to do. For one, the state of affairs makes it clear that the confidence that professional macro economists have had was largely undeserved. More pertinently, though, the state of affairs in the US and Europe have led to the need to re-examine the theories that have informed most economic explanations at the macro economy.

Coming back to one of its most lucid writers, Paul Krugman revisits the ideological arguments in the discipline generally and especially in macroeconomics. because the story is worth reading for itself and I am not as competent in explaining macroeconomics, I do not attempt to summarize it. However, it clearly states the fair point that the major assumptions of rationality by the discipline are not tenable any longer. It is clear now that the hasty dismissal of Keynesian understanding was premature and the resurgence of this alternative is almost guaranteed. With credit to Paul Krugman, he does not push the Keynesian alternative too far but has concentrated the essay in demonstrating that its; explanation of recessions and the prescriptions for going over them is more complete and demonstrably effective.

As he says, the search for a more complete theory of macroeconomics is on but I would wager that there are already careers invested in one approach. this means that irrespective of the merits or demerits of the Neoclassical approach, the success of the administration in restoring market activities will not be as easy to concede. It is also clear to me as a student of economics that the rigour of economics must require proper models but more importantly, the difficult math must yield sensible results. The absolute rationality of all financial market participants is not one of them and thankfully, markets do not demand rationality from all.

Falling Asleep Over the Board

This story in the Times newspaper reports that Vladislav Tkachiev, a professional chess player fell asleep over the chessboard while facing an opponent at a tournament. As the story goes ahead to explain, it is being posited that the maverick player, who is ranked 58 worldwide, was probably inebriated. I think that chess players are also entitled to having fun.

What I find most surprising is the call by Nigel Short and the tone of other officials in seeking to punish the player further. This is all unnecessary and the action of desperate official in professional sports in thinking that more rules will lead to their version of better behaviour. My view is that the response here is extremely silly. To start with, I play chess occasionally against friends and while I am nowhere near master level, I understand more than these officials are betraying.

They seem to be unaware that to be a chess Grandmaster requires such discipline and a high degree of concentration that it is in the interest of any player who relies upon it for income to be alert throughout matches. So to introduce any rules of overreact in this instance is just show for the crowds and the sponsors but this indignation is completely unjustified. I also think that due to the required level of alertness and the generally high intelligence of competitive chess players, the single event of a player falling asleep on the board is some remote and unlikely. The appropriate response is to let it pass and not make rules for an event that is so unlikely to occur again. True, Mr. Tkachiev should forfeit the match and the prize money and that is all. Chess is played at that level by extremely intelligent, if eccentric people, who do not need to be governed by more rules. And while at it, may i ask who benefits from rules?

Why Are So Few Athletes Articulate?

While I do not spend too much money buying sports merchandise, I dedicate a lot of time to watching soccer, Formula 1 racing and a couple of other sports events during weekends. And I also understand that these athletes are not only supremely fit but capable of amazing feats. to get to that level of physical conditioning requires significant practice because the elite athletes are all outliers according to Malcolm Gladwell's claim.

However, one of the areas in which I am almost always disappointed is while watching or reading interviews by various sportsmen who excel in their fields. Judging from a vast majority of soccer players, they are often thoroughly incoherent and speak in very short and generic sentences. I think among the phrases that athletes have explored to death are "great", "awesome" and "fantastic play". My near conclusion has been that many soccer players in particular have all their talent on their feet alone.

But there are exceptions and one of those has been Patrick Vieira who plays soccer and the vast majority of Formula 1 drivers. I have added to that list the name of Clarence Seedorf, one of the most accomplished soccer players in Europe. In this piece in the NYT sports pages, he responds to a series of questions from readers about European football management, the incomes that accrue to players and many others. He has entered my hallowed list of brainy athletes especially in reference to his answer about the determinants of players incomes. His answer suggests some knowledge of the economics of the game. He nails is properly by alluding to the fact that the market is rewarding skills for a limited set of players and that is why they are able to have large incomes.

Competition for Trainers Gaining Momentum

A while ago, I covered here and here the story about the innovative footwear that is based on the principle that running barefoot is a natural way to prevent injury. It is not surprising that a number of corporations with an interest one way or another are contesting the fact. This story in the NYT covers the small trend for certain runners to either go unshod or take up the new foot covering that mimics the bare foot.

It is fascinating that in spite of the claim that trainers today have integrated better technology and new products, the author avers that the proportion of injuries to athletes has not reduced at all. What is not in doubt is that the claim about these innovations is leading to an upward creep in the prices of trainers and an expansion in the total expenditure on trainers. In order to hedge their bets however, they have responded to the trend and are producing rival coverings that emulate the Five Fingers running shoes.

An interesting read in itself, I will watch this industry closely not only because I have run a couple of marathons casually but also because this is an education in how markets for new products form and how established products are replaced or not.

Why Sports Franchises Should Adopt Experiments

US sports franchises ordinarily employ very sophisticated marketing ideas. However, the teams have all had to review these marketing methods because of the direct effects that the economic crisis has had on consumer spending. This has been manifested in the inability of sports franchises to fill up stadiums and get the sales for their products moving.

So it appears that sports team have had to devise new incentives to try and raise attendance at sports events and to raise the sales of merchandise. As Vincent Malozzi reports for the NYT here, the New Jersey Nets basketball franchise has started to offer ticket buyers free jerseys. It is trying to put together the jerseys as a compliment to the purchase of several tickets while allowing for the reversible jerseys to also bear the names of competing teams.

While the story does not mention what the relative prices of the jerseys and every seat are, it is understandable that the promotion of a competing team is not necessarily a loss. The reason being that a league is such that all teams have an interest in promoting the entire package even if they are competitors for the prizes. This means that even strong teams need the others I the franchise in order for the NBA to continue to thrive. Because it is really difficult to tell whether these initiatives will be the most effective, it would perhaps be better for the marketing teams in each franchise to devise different incentive schemes and adopt an experimental method for determining which is the most effective. The incentives scheme that presently exists cannot be fairly compared to an alternative and proved to be the better. But to my mind, it is clear that marketers are not applied economists.

Market Signals from Cash for Clunkers

My view about the Us government's stimulus programme is that it really did help the economy from a faster slide and a worse crisis. In spite of this general approval, I was most upset by the support for banks considered too big to fail on the one side and the support given to US-domiciled car manufacturing companies based in Detroit. To my mind, there was no justifiable reason to save firms that were out of touch with their main customers and produced cars that nobody bought.

As if that was not enough, the stimulus plan had this bright idea of subsidizing US citizens who wished to but new fuel-efficient cars. By all accounts, this part of the stimulus has also been successful and has had to be shut a little earlier than initially anticipated. For all its successes, this NYT piece leads me to surmise that the way in which the plan worked out showed very strong consumer choices. Two facts stand out. The first is that a majority of the cars purchased by US citizens taking advantage of the subsidy were Asian made. This stresses the fact that even with a subsidy, fewer US citizens are willing to buy the cars manufactured by some of the US firms that benefited from a subsidy too. Secondly, the cars that have been surrendered under the programme are also overwhelmingly those produced by the same US car makers. Essentially therefore, there is some kind of substitution away from some of the US manufacturers towards the Asian cars.

To my mind, the lessons are clear here. The Detroit corporations have some carching up to do and it may even be too late for a number of them.

Bank Secrecy and Public Good

Swiss banking has acquired an enviable reputation for efficiency and solidity in keeping assets safe for individuals with large incomes and assets. Indeed, one of its main selling points has been the bankable value of Swiss bank secrecy as a recognized character of most of those banks. I have been at a loss about the virtual arm twisting that has led Swiss banks to accept the release of details of a number of account holders who may have evaded taxes in the US and European countries.

Lacking the clarity and certainty that has been expressed by various liberty-loving and libertarian bloggers on the one side and state agents arguing for the right to find and punish banks that collaborate with tax evaders, I have eschewed a contribution to that discussion on this blog or elsewhere. However, reading what I think is a mildly tilted but passable opinion by Holman Jenkins Jr. of the Wall Street Journal here, I consider that I could venture with my views too.

To begin with, businesses of every kind should design and retain the liberty to emphasize features that would give them an advantage over others based in different countries or nations. For that reason alone, there is nothing completely objectionable about Swiss banking institutions stressing the secrecy as a sacrosanct feature in their service to clients. As Holman Jenkins Jr. states, this specific feature was developed by the Swiss legislature entirely for defensible purposes aimed at preventing the confiscation of private property by the government of Nazi Germany. To his admission too, the author states that the feature was neutral and allowed both some Nazis and the Jewish families to shield their property from confiscation.

Later however, the deployment of bank secrecy as a business feature has given Swiss banks a bad name and this was bound to boomerang badly sooner than later. To start with, many African and Latin American despots and killers are known and suspected of holding comparatively large fortunes in Swiss banks. Often after the demise of these despots, Swiss banks have hidden behind this secrecy feature to prevent national governments from claiming property that was stolen from national treasuries, all in the name of absolute bank secrecy laws. This has been a frustrating state of affairs for many residents of developing nations and has made a useful instrument highly suspect and the banks largely despised.

So while I am loath to concede to government wide regulation and forced participation in a disclosure scheme, I think that the banks could have preempted this loss of public confidence by refining the secrecy laws to allow fewer despots and thieves from escaping with large sums of cash. To my mind, a person who relocates his assets across countries to evade taxes is, strictly speaking, breaking the law but cannot compare to outright killers and thieves whose money has been parked in Swiss banks for decades. Unlike Holman Jenkins Jr., I am less inclined to accept that the the problem was that the banks deployed Swiss banking too widely, but agree that it indeed was cheapened by making outright killers keep dollars that they obviously did not earn and that were stolen from national treasuries. Swiss banking has a valuable attribute but it made itself cheap by keeping assets for killers and outright thieves.

Retiring Racehorses

Joe Drape's interesting article about the lives of retired thoroughbred horses here has just reminded me about the similarity between retired racehorses and athletes. The first comparable feature is that both racehorses and professional athletes compete for prizes in sports disciplines with a very fat tailed curves. In essence, a very small proportion of athletes and racehorses win a majority of the prizes available both in volume of races or overall value of prizes. In the story of the Tour of the Cat, one is not surprised that this racehorse won US$ 1.1 million over a nine year career and is already unfit to compete further due to injury and advanced age. It is quite akin to the work life of professional athletes who earn the large portion of their incomes early in life and are often forced into retirement by age, injury and often by both.

The comparison breaks down because retired athletes receive financial advise and are able to keep aside some cash for their retirement while the money that is won by horses is often fully taken over by their owners. So whereas both have retirement homes of sorts, the horses do really badly because with broken down bodies and increasingly injury prone, they are conveniently taken for slaughter or auctioned off to kind keepers. Still, it is worthy of mention that a number of athletes end up being destitute as well in spite of their incomes. Again, the solution here may involve mandated savings for horses as well since many sports franchises require athletes to receive assistance with planning that for their retirement. A pity that it would be difficult to impose that on horse owners who may appropriate the entire race income and dispatch the horse back to an undignified retirement.

The reason for this tendency to abandon horses is clear. Competition is so intense that the owners of racehorses have to nurture several horses but only manage to recoup profits from a much smaller number of winners. Aging or injured horses are then caught in this game of numbers and are dispensable. Sad but a fact.

Politicians on Facebook

I have recently acquired an intense interest in the use of quantitative measures to explain political and other facts. However, I have had to blink after seeing something about the number of visits to Facebook sites by various politicians in the US. I will refrain from a very hard interpretation of this fascinating chart appearing here on the Daily Dish Blog but it tells a story about where the real following is. So what's one to make of it?

My Hat Tip to: Patrick Appel

Quoting Alan Greenspan

"We often forget that to function effectively, a competitive market must be voluntary and free of significant threats of violence, and that trade must be unencumbered. remember markets are not ends in themselves. they are constructs to assist populations in achieving the optimum allocation of resources".-Alan Greenspan in The Age of Turbulence p. 461.

Proof That DNA Evidence Can be Fabricated

I consider that the use of cutting-edge technology is an imperative in the provision of public goods and services. Therefore in spite of my real skepticism for some functions undertaken by governments, one area where I support it is in the provision of public safety as a public good. But having read Actual Innocence, and encountered the critical ways in which DNA evidence has been used to free people who were wrongfully convicted for murder, I have had enormous respect for DNA evidence in forensics and law enforcement.

My impression from that book was that thanks to lawyers such as Barry Scheck and the Innocence Project, DNA evidence is really a neutral factor in criminal prosecutions because it can work (sometimes retrospectively)to clear innocent accused and expose police and prejudicial prosecution and corruption. So in a way, the oft-stated conservative mantra that only criminals need to fear was partially justified.

However, Andrew Pollack's interesting piece in the NYT today states that scientists in Israel have demonstrated that DNA evidence can be fabricated. To my mind, this does not on its own discredit DNA evidence as much but is a mere reminder to law enforcers generally and judges in particular to treat evidence carefully and to allow for wider and dispassionate scrutiny. Indeed, the point of the story is to illustrate that the firm called Nucleix has developed a mechanism for distingusihing between authentic samples and manipulated ones.

Having read the book stated above, I am not sure that the average criminal would be interested in fabricating samples to incriminate another person. Instead, it is the police and prosecuting authorities whose evidence must be subjected to stricter tests. The real concern for anyone with a liberatarian inclination is the possibility that one's DNA material may be illegally harvested and published. Still, I am sure that the response is not to banish technological development as much as ensure that there are appropriate legal remedies for such action.

Usain Bolt Takes 36 Strides to the Record

I have reviewed casually the data from the Olympic games from last year. I told myself that the men's 100 meters sprint record was in my view off the curve that within two games, the timers would have to include at least three decimal places. My reason then was that with a world record established at 9.69 seconds by Usain Bolt, it would be soon not be possible to break that record by large margins.

Its  its a good thing that I did not place a large bet on that because Usain Bolt run a race at the World championships that set the record at 9.58 seconds. To my mind, it was not just the way that this runner made the world's best trained sprinters to look ordinary but the margin was huge in two ways. In my calculation to cut down that record of 9.69 seconds over a year by 0.11 seconds is an amazing feat notwithstanding the new training methods and technological aids. tThe second point is that his challengers run a fast race that would have won Ggold medals for the first four, two games ago.

As the story in the Irish Times here states, he did it all in 36 strides. That does not sound too many but they were really quick slides. Just like a bolt of lightening. It just makes me wonder how far the record can go and with the impression that Bolt has some more sprint power in reserve, we need not start taking 4 decimal places yet. nNot until bBolt is done with running.

Australia Needs Effective Camel Population Control Solution

We live in a world in which sensitivity to the effects of human and animal activity to the environment is facing sharp scrutiny every day. So Australia has designed a camel population control policy that relies will rely primarily on shooting the animals from the air. Without doubt, animal rights activists are unhappy as they term this particular approach as completely brutal and unnecessary. As this story states, it appears that all the discussion is based on contentions without new and alternative proposals coming to the fore.

What most impresses me about the story is the fact that the camel population, which is estimated at 1 million, is expected to double in another nine years. The effective growth rate therefore is close to 8% annually. At this rate of growth, it is clear that a working solution is required. And I am pretty convinced that there's definitely a far better solution that could be brought to bear on this problem than that at hand. Again, admitting my bias towards solutions developed from competition, I am certain that for a prize equivalent to the anticipated cost of the camel population cull, a far better market derived option can be developed and put to use.

For instance, using a proportion of the Australian $20 million as a prize, the Australian government should set out a competition on the development of a viable population control plan that could be implemented across a time frame. In my view, the prize money could then be paid out in slices depending on the achievement of certain metrics. This can be done and I would myself enter that competition encouraged by even a small proportion of that prize.

So what would I propose? I cannot state this off the top of my head now but I think that the chosen approach would probably involve a variety of solutions as opposed to a silver bullet model. It is possible that a 900 kilogrammes animal could yield meat for export, with skin used as leather and live animals being auctioned too. I would wager that a composite solution comprising a market mechanism would emerge that would bring back a significant proportion of the Australian $20 million.

Barefoot Trainers Are Here!

A couple of posts ago I made reference here to a review of Christopher McDougal's book making the argument that humanity is especially evolved for running barefoot over long distances. In addition, I presented an anecdote about my experience running two marathon races in new trainers and the effects that this had. Concluding that blog post, I argued that there was little chance of my running the marathon unshod even while admitting that expensive trainers are not always worth their cost.

Clearly, an entrepreneurial firm agrees with my contention about the comfort that comes with running with trainers and has designed an alternative form of trainers. Vibram's Five Fingers running shoes mimic the effect if running barefoot and illustrate to me the ingenuity of firms in responding to the needs that people have. While acknowledging this factor, I am sure that even Vibram has tow challenges because at £98.99 Sterling, these are still an expensive and specialist pair. Secondly, the marketers of the pair of alternative footwear will probably face the task of selling the item because it does not compare well to conventional trainers and sneakers on the aesthetics side.

What must be stated though is the fact that markets respond to opportunity and perhaps for this item of footwear, the cost may be absorbed entirely by those who are specialist runners for whom it is obviously good value. I now wait to see whether the East African elite marathoners will be asked to endorse the product. More power to the markets.

Broadband Arrives in Africa

It is unimaginable to many people outside Africa that the eastern coast of the world's second largest continent was the sole area with no undersea communications cable. Thankfully, this distinctive measure of underdevelopment is now coming to and end through the development of a number of undersea links to the eastern coast of Africa. Bearing names such as The East African Marine System (TEAMs), the East African Submarine System (EASSY), Seacom and others, the world is finally fully connected.

Cat Contiguglia of NYT covers the amazing series of infrastructure development for Africa and traces some of the expected effects on business and other measures of human developments. Clearly, the west African coast was long connected by cable but this has not had as much effect as the is now expected.

That African citizens have relied on slow satellite communication for so long when the better alternative was available is a story about the national monopolies that did little but bar competition and better service. It is essential to note that the diverse set of investments imply that there will be a degree of competition which will lead to a reduction in prices for communications generally. In spite of the enthusiasm for the new dispensation, I wonder where the extra capacity in large bandwidth will be applied.

It is clear that there may be scope for developing call centers but the worldwide competition in this service is already high and the premium has been largely harvested by India and other English-speaking Asian countries. I fear that in this business, Africa generally may have come to the table too late as usual. My cynicism notwithstanding, the mere drop in costs of telecommunications will lead to innovations and costs savings all around. My own bet is that it will not necessarily be in the call centres. As the main story states, there are businesses that will probably rue the arrival of the Undersea cable. let's see creative destruction at work too. I will be watching as new businesses develop but also as others are rendered obsolete.

Another Reason not to Buy Expensive Sneakers

I have run a city marathon in the tropics on two consecutive occasions a couple of years ago and learnt that running the marathon is an extremely painful endurance event. Because I ran as a full amateur and with less than a week of training, I was quite pleased to have done it in time slightly less than four hours. Another of the major mistakes that I and my brother made was to purchase moderately costly running shoes just before the race day. Needless to mention, the shoes were comfortable for the first ten kilometres and a real pain for the rest of the race. Blisters are common for professional runners too but to have lost toe nails is evidence of that imprudence because there are things even the best running shoes would not give.

Karen Knee's book review looks at states the argument by the author that running unshod is the perfect way to run comfortably over distances while avoiding injury. Christopher McDougal writes in the book that he took up running years back and over time came to realize that the Tarahumara are able to maintain pace and cover long distances not only because of their innate ability but because they run in flat rubber sandals. Other biological evidence show that the human species is specifically engineered for long distance running because of the ability to dissipate heat through sweat and that the pace of breathing is also independent of stride. In addition, it states that the upright posture is complimented with tendons which enable the human head to stay upright while running.

The book reviewer has made the book's arguments really well and I find the thesis really fascinating. Still, when I run the marathon again in October of this year, I will recall all this but remember that running shoes can still be very comfortable even if unnatural and predisposing towards injury. In the long run, I still will prefer running shoes. Are Nike's sports shoes engineers listening?

Oxfam Enters Used-books Market With a Bang

It is without doubt that Oxfam is one of the world's most influential advocacy organizations addressing poverty in low-income countries. the organization also has very wide recognition and undertakes a lot of activities related to international trade and how the rules work against the interest of many low-income countries. However, I respectfully classify it as a capable organization whose advocacy is sharp but whose discomfort with market mechanisms almost leads many to think erroneously that developing countries should eschew all international investment and competition. In particular, I find the Fair Trade argument unconvincing, if not altogether disingenuous.

Steven Morris' article in the Guardian here illustrates the fact that I was perhaps wrong in my assessment regarding that organization's understanding of how markets and competition work. Indeed, Oxfam has employed a very market savvy model and infused competition in the used books market in specific cities within the UK. In addition to providing competition to second hand booksellers, it also classifies the books and uses an auction model to raise the value of rarer texts. While I understand the complaints by its competitors, it is clear that Oxfam's entry into the used books market and choice of location is demonstration of the value of markets. Now I hope that it will support free trade and competition within the low-income countries that justify its existence. May the Oxfam bookshops continue to thrive.

Do Golfers Earn Income the Hardest Way?

In an article praising the recent performance by an older golfer during the British Open tournament, Thomas Friedman considers how unique Tom Watson's performance was. It was a singular achievement because Tom Watson was 59 years and therefore the oldest golfer among the competitors, but also lost in a play-off. Most of the field was comprised of golfers at least two decades younger.

However, the most fascinating part of the article is the way in which he chooses to distinguish golf from many other sports events. one of those is that golfers tend to play as individuals and not in team events and where ability is demonstrable to all. the playing surface for golf is also largely created to be an obstacle unlike for other sports events. But the most unusual one is the fact that playing professional golf requires that one wins in order to earn money. While this is not unique to golf, this is a poignant distinction about how sports prizes are distributed.

The lesson here is that the manner in which sports prizes are organized for team events leave scope for a lot of free riding. i wonder what the pay differential would be like if team players were paid by certain objectively identifiable deliverables. Granted that certain Formula One teams also pay huge salaries, a good number of them also pay for finishing and placing among the points. On the other hand, I think that the pay structure for team sports recognizes that a element of team work is useful and that athletes ought to see their success as a product of joint work.

Is Public Sector Wage Hike the Cure for Corruption?

Mark Gimein's piece in the Bigmoney.com has given me some reason to think about how to design systems of compensation for workers in the public sector to improve service delivery and reduce corruption. Mark uses the recent indictments and arrests of public service professionals in New Jersey to argue that the problem could be solved by raising substantially the compensation of public servants in the US. In my reading, he suggests that this principle perhaps has general application.

First, I am generally cautious at an supposedly incisive account for sorting out public problems that concludes with the need to merely spend more money. But I am really surprised with the comparisons that Mark makes by saying that public servants in the US should be brought as close as possible to private sector pay I order to reduce the temptation to accept bribes. Later in the story he unbelievably suggests that a raise in the pay of public servants would in turn ratchet upwards the cost f bribes and perhaps reduce their number.

To my mind, I see the fact that public service professionals frequently bear discretionary power for which there is little oversight as the main driver of the tendency to abuse that power. I suspect that there's little link between this and the absolute income per se. By stating that the US$ 171,000 pay for the governor of Illinois makes the individual particularly susceptible ti trying to sell a senatorial seat, Mark is obviously overstating the case. What I see here is that Governor Rod Blagojevic merely tried to capitalize his very broad discretion. That would most likely happen even if he earned US$ 1 million.

Because the piece makes interesting reading, this blog post will not summarize it fully. Instead I will comment on the link between lower corruption and higher wages for public sector workers that the author cites.To my mind, I suspect that the direction of causality is not only unclear but would be stronger for a high income nation because of the ability to develop more robust oversight mechanisms. While the influx of wealthy people into public service in the US is laudable, I would not dare say that I am convinced that this has reduced the degree of corruption in public service. Perhaps Mark Gimein should tell whether any town would want Madoff for mayor.

The Vanishing Envelopes of China

Looking at Chinese progress throughout the last two decades, it looks as if it has a very competent government and public service generally. Now, this story in the NYT is one that reminds about the ridiculous things that happen in that otherwise impressive economic growth story. It chronicles the life of Xue Longlong and the loss of his certificates due to what officialdom describes as misplacement and which increasingly looks like something really corrupt. As the story states, it appears that the ability to validate academic qualifications rests entirely with public sector workers and that records throughout a student's career are kept in a single file kept throughout one's life. The risk associated with these seem to escape the bureaucracy or perhaps some in its understand that once all the records are in one place, then it is easier to purvey them corruptly.

To my mind, this suggests a simple lesson that should be clear to any bureaucracy. Highly centralized systems may appear effective in getting people to do big building projects but it is not necessary to keep the record of millions of students in one place and in a single institution. I am at a loss when I consider China's population and imagine that any one person's records can only be verified through a single office. This is a failure of centralization taken too far because academic qualifications should be verifiable from the institutions that offered the courses. In which case, there would be a distributed network of offices bearing different records that could be used to build a composite picture. To my mind, there's good reason for the rise of a number businesses that would reliably verify academic qualifications.

The most surprising bit is that the China's private sector continues to rely upon the public officers to confirm individual capability when it ought to be clear to them that these are corrupt. The best way out is for them to show less respect for the brown manila envelope an ask Mr. Xue Longlong's University to verify his academic qualification. To continue to insist on the production of that Brown envelope allows the corrupt market to thrive.

Amazon and Remote Deletion

Farhad Manjoo of Slate Magazine covers here the recent deletion of certain book titles from the Kindle by Amazon without prior consultation with the owners of the gadgets. To my mind, this shows an exceptionally broad remit that Amazon retains for itself regarding a gadget that it sells expensively and which I have written exuberantly on this blog. While Amazon has explained that the deletion of the books from the Kindle gadgets was occasioned by the fact that digital titles had been mistakenly published and may have been in breach of intellectual property rights, I am truly amazed at this degree of brazenness.

As a person who is seriously considering the purchase of the Kindle 2, I am taken aback by the enormous power that Amazon not only had but which it has unilaterally wielded against its own customers. This reminds me of the behaviour of firms that tried to impose unrealistic Digital Rights Management systems on purchasers of CDs. The bigger question in my mind though is on who really owns the Kindle devices and the digital books that are read on them. As the article under reference states, the service contract suggests that Amazon interprets this as its property.

Well, Amazon is entirely entitled to its interpretation but I think that when I eventually purchase a Kindle 2, I will continue to fully assume and claim property rights to the titles that I have paid for just as I am convinced of my ownership of the number of books that I have bought from the Amazon store. Nobody should sneak into my library and take away titles from my shelf just because the titles were mistakenly sold to me. I would fully appreciate a note perhaps reminding me that the title was sold to me erroneously and that I should consider adherence to the law by returning it for a full refund. That's just sound etiquette and one that Amazon should consider before acting with stealth like it did. This is the first regulatory issue regarding the rights of Kindle users.

If Tap Water is Better Why Ban Bottled Water?

An article in the NYT here reports the fascinating case about a small town of Bundanoon in Australia that has effectively banned the sale of bottled water within its jurisdiction. I agree with some of the intended effects but think that a number of presumptions have been made and the policy prescription unduly restrictive and probably ill-considered.

I maintain the view that in many developing countries, bottled water is an urban luxury while in high-income countries, the purchase of bottled water is a reflection of preference for a marked product. It is also true that many people ascribe to bottled water, a level of superiority to tap water that it neither has nor deserves. water is an increasingly important resource and the extraction by bottling companies is receiving widespread attention. The main concern is that bottled water leads to the a large number of plastic bottles and the transportation all over the wold leads to the emission of pollutants and earth-warming gases.

This is a plausible argument that is acceptable by many people but like in earlier blog posts such as this one, I depart company when it argues for banning of bottled water. To rehash the arguments, it has been demonstrated that tap water suffers a bad reputation when in reality it is safe enough to drink in most places in the world. What bottled water marketers perhaps should be compelled by policy is to internalize the costs of the pollution that comes from the containers (whether glass or plastic). I am not sure that these two should be treated as perfect substitutes when one is consumed as a luxury product. Indeed, the best way for bottled water to pay its way is for the city fathers of Bundanoon to support the creation of a carbon tax which would then ensure that bottled water finds its rightful prices. A ban is very statist and altogether unwise. If the belief is really that tap water is better, then why ban the inferior product?

Japan's Coming Population Growth

I sometimes play a very simple game with friends who travel frequently throughout the world. The game involves asking them which cities they have visited over their adult lives and try to tick off those against my very modest list of cities visited in international travel. I invariably find that in spite of its being the world's second largest economy, a very small number of people known to me have visited any city in Japan. My index of isolation is far from perfect because the people I encounter tend to have travelled mostly within Europe, South Asia and North America.

However, even my very unsophisticated algorithm of the correlations between the travel destinations of my acquaintances got me thinking when I read this today. Daniel Gross argues there that in spite of a growing demographic crisis in the form of a shrinking population from low fertility rates, Japan seems to be reluctant to allow for immigrants. Indeed, the issue of the population problem is discussed broadly but the real options of a flexible immigration policy or raising the fertility rates go unresolved.

I am suspicious of most linear forecasts suggesting that the world's population growth rates threaten human survival. Most of these claims tend to be based on a preacher's approach towards controlling populations in Africa, Latin America and places in south Asia where populations are undeniably poor. To my mind, Japan seems to be facing some danger but it ought not to be overstated because fertility rates could kick off with the right incentives and immigration policy could also be adjusted to ensure that the appropriate choices are made by individuals. On this instance though, one must see that the obsession with cultural purity in a scientifically advanced society is part of the problem. Still, its no problem if a society wishes to have robots help it maintain industries and work going. My bet though is that in the next decade or two, Japanese immigration policy will be gradually eased to allow for immigration from the region and among those who departed earlier. Sometime in the future, something will have to give and I suspect the domestic politics will not keep the options bottled up for too long.

Banks and Compensation

I have argued on this blog before that the financial crisis was caused primarily by regulators who slept on the job in addition to the idea that government will not let some banks to fail. I am less convinced that the remuneration that firms choose to pay their employees should concern anyone other than shareholders. In the last week, there has been confirmation that Goldman Sachs and JP Morgan, both investment banks, are back to high profitability and are prepared to pay bonuses and perks that are no different from the behavior that their critics loath.

I have little sympathy for the argument that such high pay is harmful to the financial system because it does increase the propensity for reckless risk taking. To my mind, the reason for high profitability in an industry is because of a unique ability or insufficient competition. That both JP Morgan and Goldman Sachs are making profits that are considered too high should lead to proper diagnosis of the problem. First, that many financial services firms and investment banks needed cash from government means that their managers are certainly not as bright as they believe. Secondly, it is possible that the distribution of profits favours a few firms in that industry and this to me makes more sense.

As Graham Bowley of the NYT states here, the recent crisis nearly decimated a large number of firms and that has allowed JP Morgan and Goldman Sachs to become the preeminent bakers for the moment. It is not clear that they will maintain this position but the fact that the crisis has led to a new industry with new opportunities exploited by the two shows that the markets are working decently. That these firms were propped up with public funds does not bother me much now because they have paid back. More competition is always better and regulatory policy should concentrate on this side of the business.

However, the possibility of a new crisis that devastates the market and leads to a widespread economic crisis still exists. So while governments are unhappy with the new bonus plans, I have little respect for this view. All they need to state categorically is that there will be no future bailouts irrespective of the cause and leave investment banks to their devices. Reigning in poorly designed incentive schemes in banks is the work of shareholders.

Time for Book Publishers to Study Napster

Anyone who observes the market development of electronic books cannot help but wonder about two things. The first is which of the various platforms such as Amazon's Kindle or the alternatives will carry the day. Secondly, one is struck by the fact that Napster's effects on the music industry are not properly heeded by book publishers today. In spite of the fact that the industries are not the same and the effects of digitization are not the same, there are ways in which the complete refusal to consider new formats shows that there is lack of thought by book publishers.

While I have written on this blog here and here on my thinking about Kindle and what effects it would have on the book publishers markets. Writing in Slate Magazine, Jack Shafer illustrates the wrong-headed thinking that characterizes the responses from book publishers with their obsession with higher margins from hardback and other copies of books. To my mind, in spite of the evidence that there is consumer appetite for electronic formats in books, the industry's giants seem to be prepared to die defending their longstanding business models. I admit that there are no certainties about how big the e-book industry will eventually become but that the option for buying books in this format is one that cannot be rolled back.

To my mind, the majority of books are being read in formats that are comfortable today but the spread in the proportion of books available electronically will drive more intense readers towards digital formats. All these mean that the industry will not remain the same and that the Kindle and its competing gadgets will only get better and provide cheaper products while people ask why a hardback really has to cost US$ 25. Whatever happens, my bet is that consumers will win and e-books will continue to take up an increasing proportion of books that are sold. While Napster did not live to appropriate all profits from sale of digital music, no doubt it changed the music industry by destroying a comfortable business model. As these book publishers are spending time defending their paper-based markets, they are letting the gadget sellers as Amazon and its competitors to define the market. That cannot be good news. Let's watch.

Charities Using Naming Rights

Many people find it difficult to ignore pleas for assistance to citizens of poor countries in Africa, Asia and Latin America. At the same time, it is often difficult to demonstrate convincingly that this private assistance makes a big difference and this has led to cynicism about what real difference one can make. However, a number of philanthropists are matching dollars to big but useful ideas in a way that is making a difference and exploiting market mechanisms. In this article by Nicholas Kristof of the NYT, it is clear that in spite of the broad cynicism about charity from the countries whose citizens have higher incomes, there are new approaches to delivering assistance with better results than before.

To my mind, the most impressive is the offer for naming rights to wells in countries where a given charity has sunk a number. I find the replication of naming rights together with specific GPS coordinates an interesting way for verifying that the project does exist. Given the lucrative contracts that companies have had for Stadiums and other sports facilities, I think that this illustrates the growing sophistication of these charities in harnessing new opportunities. Giving credit where it is due, i am not sure whether the proliferation of wells is not always the best way to deliver water to rural villages.

However, I think that the possibility of extending naming rights to portions of tropical forest, coral reefs or fragile lands may be an idea that private sector firms may explore as green messages help in communication of environmental awareness.

Pixar Movie Beats the Analysts

To try and slam any Wall Street analyst at this time is obviously to come to the party while the tables are being cleared. My only hope would be that Wall Street technical analysts would by now have had some decency to be more humble and less hubristic about forecasts of whatever nature. And yet it appears that they have continued to give aggressive forecasts and made calls that gullible investors take seriously, or not.

This article from the NYT reports about Richard Greenfield a celebrated analyst has had to eat humble pie after making a forecast on the movie Up. To my mind, the admission is still qualified by the statement that the single movie's success does not mean that Disney will do well all around. That in my view is a more reasonable statement than the crunching of numbers and technical analysis stating how much a movie will gross. With respect to the training and professional capability of Mr. Greenfield and other analysts, they do not always understand businesses that they pontificate about as well as the managers of those businesses do. And the moral of this story is that it should be fine for a professional to say, "I do not know" as opposed to presenting dubious forecasts. Leave that to witchdoctors.

Still, I am curious about what the revenue forecasts from Epagogix would be for this movie.

Doubt and Certainty

" If a man will begin with certainties, he shall end in doubts but if he will be content to begin with doubts, he shall end in certainties". Francis Bacon

How Should Movies be Ranked?

Its summer in the northern hemisphere and the blockbuster movies are now showing in theatres throughout the world. There are a number of guesses about what movies will do well in the theatres (perhaps with pirates too) and the rest. However, an important feature of these is the extent to which sensible economics is usually put aside in the comparison of which movies are most successful. Zachary Pincus-Roth writes in the Slate Magazine about the inappropriate comparisons on the gross revenues from movies without accounting for inflation.

So many people continue to believe that the highest grossing movie of all time is the Titanic when this is not at all true. As argued there, to compare the nominal revenue figures for movies made over six decades apart is hugely problematic. Depending on the chosen metric, such as nominal or real revenues, the overall number of tickets sold or the population base for the sales, the ranking of the pictures considered varies quite a bit.

However, this merely shows that journalists should be more cautious in taking up the best parameters to suit the point being made. In spite of this, it altogether incorrect to rank movies made years apart on the basis of nominal revenues. As the story concludes, a number of reasonable algorithms can be drawn to provide plausible ranking of movies. In my reckoning though, it would be helpful to consider what proportion of the entertainment budget of households is spent on movies and weight that accordingly.

Finally, it is also worth considering to what Epagogix, a company that uses sophisticated models to predictive the box office takings of a movie, consider inflation.

Professional Tennis Makes Drug Testing a Joke

Institutions that manage professional sports are still overwhelmingly opposed to the use of steroids and performance enhancing substances. The idea behind this is that the use of such substances results in unsportsmanlike behaviour or outright cheating. But it is essential to note that the incentives to cheat in professional sports today exists primarily because of the financial and reputational rewards that attach to athletic excellence.

With this fairly commong background, it appears that some sports management bodies are far more thorough in vetting for drug use than others are. Similar to the claim by Bill Gilford in the Slate Magazine, it is clear that the organizations that more throughly vet and test athletes are at a disadvantage because a larger proportion of the athletes there are bound to fail the tests. It is therefore very curious that a disproportionate number of professional tennis players are caught for use of these prohibited drugs.

As Gilford explains, while it is possible that professional tennis players are probably more honest than others, the advantages that are conferred by the substances would be relevant for this sport too. While I am wont to give the professional players the benefit of doubt, the very poorly designed testing regime for tennis is one that raises the possibility that a number of cheats are getting away. A better regime would obviosuly step up the number of tests and include a testing regime that is timed to ensure that the substances that are being tested for can be reliably detected.